Stock market continues slide

by Madlen Read, Associated Press, Posted: December 18, 2007

NEW YORK - Wall Street extended last week's losses yesterday as investors remained concerned about flagging growth and rising prices and skeptical that a special Federal Reserve credit auction would be a solution.

The Dow Jones industrial average fell more than 170 points, and all the major indexes lost at least 1 percent.

Investors remained nervous even as the Fed offered $20 billion in 28-day credit through an auction yesterday. The central bank will not release the results until tomorrow, but the aim of the auction is to encourage commercial banks to borrow from the Fed. That, in turn, is designed to boost banks' lending to businesses and consumers and keep the economy humming.

A speech Sunday night by former Fed Chairman Alan Greenspan added to the market's ill humor. Greenspan said stagflation - when inflation accelerates and the economy weakens - was a growing possibility, given last week's data showing spiking consumer prices. With inflation on the rise, the Fed, which has reduced the target federal funds rate three times since the summer, might feel less inclined to lower rates again.

Higher inflation is also a problem for consumers, especially during the holiday season. With only a week left until Christmas, sales data have suggested tepid spending by Americans, who are struggling with higher food and energy costs and tumbling home values.

The Dow fell 172.65, or 1.29 percent, to 13,167.20. The Standard & Poor's 500 index dropped 22.05, or 1.50 percent, to 1,445.90, and the Nasdaq composite index was off 61.28, or 2.32 percent, at 2,574.46.

The dollar was mixed against other major currencies, while gold prices fell.

The New York Fed's Empire State Manufacturing Index fell more sharply in December than economists anticipated, while the National Association of Home Builders said its housing market index held steady in November at its lowest level since it started the index in 1985.

Wall Street started 2007 soaring because of strong merger-and-acquisition activity, but found little consolation in deal-making yesterday.